Will The iQiyi (The Netflix Of China) Get Acquired???
iQIYI, Inc., together with its subsidiaries, provides online entertainment services under the iQIYI brand name in China. It operates a platform that provides a collection of Internet video content, including professionally-produced content licensed from professional content providers and self-produced content. The company also operates movie theaters in China. In addition, it provides membership, content distribution, live broadcasting, and online gaming services.
iQiyi has a digital advertising business behind ad-supported internet video, like YouTube and is building a paid streaming business supported by premium subscriptions, like Netflix.
iQiyi has a grip hold on Chinese market with 100 million paying subscribers on its rolls. For comparison purposes, Netflix has a 150 million premium streaming memberships worldwide. But the difference is iQiyi's audience has grown over 50% in the past year.
Just like Netflix has competition, so does iQiyi. Tencent‘s video and Alibaba‘s Youku Tudou, are much bigger iQiyi. Also the company isn’t profitable….just like Netflix. But unlike Netflix, roughly 93% of China's 1.4 billion population is still on the sidelines.
But what if the competition acquired uQiyi?
In mid-June, reports surfaced that Tencent was looking to acquire a controlling stake in iQiyi, currently majority-owned by fellow large-cap internet giant Baidu (NASDAQ:BIDU). While both Tencent and iQiyi have achieved remarkable growth and scale, with each company recently reporting over 110 million subscribers, profits have been hard to come by in the sector.
But deep-pocketed Tencent, which is still quite profitable overall thanks to its online games, social media, fintech, and cloud divisions, is in a much better position to consolidate the space. In addition, Tencent has experience consolidating competitive industries and turning them into profitable businesses. Should it follow through and do the same with iQiyi, it could benefit all players involved.
Now a couple of weeks ago, Oppenheimer analyst Bo Pei did downgrad the stock to perform from outperform. Bo thinks the number of subscriptions membership will decline as a result of China re-opening their economy. But Bo also noted he expects more "highly-anticipated content" in the third quarter that could reignite subscriber momentum.
I think ultimately this is a China internet play and if you believe in the theme, could be a great speculative play. However, after looking at the chart, the better buy was lower as additional upside is limited based on the monthly supply $6 away from current price.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
Posted Using LeoFinance
